MAR 28, 2018
Uncertainty. Global markets hate uncertainty even more than they hate repeated, terrible news. And if the Trump administration has established anything, it’s that what is promised one day can vanish into a torrent of new bluster the next. Nothing is for sure. Promises are yesterday’s fake news.
So whether it’s the super-hardline “Trade wars are good and easy to win” Trump of early March or the kumbaya “Everyone will be happy!” now-suddenly-we’re-negotiating Trump of a couple days ago, expect more chaos and expect more worry. Two of the most reliable drivers of the gold price that exist.
The concerns about global trade wars are fundamentally positive for the gold market. You see, gold behaves like a currency. You can think about the yellow metal as a bet against the current monetary system based on fiat currencies, in particular the U.S. dollar.
When it weakens, gold shines. And what determines the investors’ confidence in the greenback? Well, there are several factors, but government policy is crucial here. Not only monetary and fiscal policy, but trade policy as well.
As we explained in the February edition of the Market Overview, the rising protectionist rhetoric deteriorated the perception of the U.S. as a reliable ally. You see, the U.S. was the principal architect and backer of the liberal world order.
Investors worry that this order is fading now. Even if this is not completely true, it’s quite reasonable to buy some gold as insurance, isn’t? Hence, the worries about trade wars should support gold prices.